Crypto Rally Incoming: Hidden Bullish Divergence
After Tuesday’s (July 16th, 2019) route, the cryptocurrency market has bounced back. Bitcoin still struggling to recover yesterday’s losses – but altcoin market showing strong gains.
Bitcoin Down, Altcoins Up
In a rare switch of pace, the altcoin market is showing signs of real strength and recovery after yesterday’s big slaughter while Bitcoin is the major laggard. At the time of writing, Bitcoin was up 3.32% against the US Dollar while the majority of the altcoin market was outperforming Bitcoin against the dollar by almost twice as much – while also outperforming Bitcoin by large percentage points.
The image above shows two charts. On the right is the performance of the entire cryptocurrency market, on the left, is the performance of the cryptocurrency market excluding Bitcoin. For the first time in a number of months, the chart on the right is outperforming the chart on the right by a large margin – almost 2 to 1. The market cap with Bitcoin is currently up +4.24% while the market cap excluding Bitcoin is up +7.12%. The chart on the right is displaying some technical behaviors that indicate a low might be in on the current down drive it’s experienced. First, the current daily candlestick, so far, shows an inside bar. This is a very popular type of candlestick many traders like to identify as there are a number of highly profitable trading opportunities that come out of an inside bar – especially on a daily chart. The bullish nature of that pattern may be exacerbated by the current level of a number of oscillators.
The chart above shows the cryptocurrency market’s performance excluding Bitcoin (the same chart on the right on the previous image). This daily chart shows a particularly strong pattern known as hidden bullish divergence. Hidden bullish divergence doesn’t mean that something is hidden or hard to find – it merely means that if it appears and the overall trend has been bullish, then a continuation higher is very likely. In regular bullish divergence, we look for price to create lower lows while an oscillator like the RSI would show higher lows – regular bullish divergence appears at the end of a downtrend. Hidden bullish divergence occurs when price makes higher highs and the oscillator makes lower lows, this condition occurs during an uptrend after a short term corrective move has occurred.
The RSI went below the default oversold condition yesterday and has promptly traded back above the level 30 value area. The most recent low on the RSI level represents the lowest reading it has had since the bear market low set around December 15th, 2018. The Composite Index is also showing a new major low by printing the lowest low it has had since November 16th, 2018 – but it has shown a strong reversal today. And finally, the %B is sloping up. The RSI, Composite Index and %B all have one shared condition: major and shared troughs (lows). For all three of these indicators to have similar and shared structure is a rare occurrence – and one that almost always shows broad and extended rallies.